CASE: Hewlett-Packard Company: Network Printer Design for Universality (p. 358-363)
It allows HP to postpone (product standardization, postponement) the allocation of laser printers (or specification of printer engine) to specific regions by about two months. Thus, in these two months the decisions can be made based on the aggregate demand forecast (US & Europe) in all regions. Production team believes universal power supply can enable HP to better respond to regional demand (US & Europe) and reduce its inventory costs.
1. Disadvantages / costs of the universal power supply include:
i. Increase material cost (USD 30/unit)
ii. Possible power play among ...view middle of the document...
Elimination of costs of discounting unsold products at end of PLC (due to which customers expect HP to drop printer prices over time, and undercutting HP’s ability to command premium prices in the market).
ix. Elimination of costs associated with unused power supply modules (i.e. discarded from transshipped printers, needing re-configuration at the end of PLC)
1) When the product is first introduced into the market, demand is highly volatile and unpredictable (high forecast errors) as demand is not known with certainty.
2) The cost of stock-outs is higher during the ramp-up (i.e. introduction) stage of the product life cycle because HP is able to charge a premium due to lack of competition initially, and the adverse publicity of stock-outs at the beginning can impact the ultimate success of the product.
3) Therefore, the benefits of risk pooling through the use of the universal power supply are greater at the start of the life cycle when more safety stock needs to be held (to avoid stockouts and corresponding costs), and inventory holding costs are high (due to greater safety stocks).
4) At end-of-life stage, there is less fear of adverse effect on future sales and therefore cost of stockouts considerably lower (also resellers might steer custs. to wait for the new incoming replacement product)
5) Toward the end of the life cycle, inventories are reduced, and transshipment becomes an option to alleviate demand imbalances between different regions. Therefore, the benefits from a cost reduction in transshipment (re-configuration costs eliminated if using universal power supply) become more important at the end of the product life cycle (as compared to if using distinct power supplies).
The lead time that results from outsourcing the printer engine to a Japanese supplier that holds monopoly power is very long compared to the life cycle of the product (41/2 mths. in an 18 mths. PLC). Also, under the buy/make framework, outsourcing a key component of a modular product may be a risky decision for the company. Therefore, in order to reduce this risk and the lead times, HP Boise should consider manufacturing (and develop competency) of the printer engine in-house if there is enough production capacity. In addition, this would provide savings in transportation...